Santander bails out struggling competitor

Santander Spain has acquired the assets of Banco Popular Espanol SA in a move which was prompted by regulatory issues and a run on the banks deposits. We have also learned that Santander acquired €30 billion of real estate loans and assets together with a property management company by the name of Aliseda which has strong historical links to Popular. The enormous real estate book which Santander has taken on includes an array of different types of property and different types of property loans. As a means of mitigating the company’s exposure Santander is looking to sell a 51% stake in both the loan book and the property management company for around €5 billion.

Interested parties

At this moment in time Blackstone Group, Apollo Global Management and Lone Star Funds are in the frame to acquire a 51% stake in the joint businesses. Santander will retain a 49% stake and look to operate them on a stand-alone basis with the intention of liquidating assets and loan books in the short, medium and longer term. The plan seems to revolve around the sale of around 50% of the real estate assets which were acquired for just one euro earlier this year.

Popular was in dire straits and there was potential for contagion to spread right across the Spanish financial sector. It will be interesting to see how successful Santander and its future partner are with regards to asset disposals as there are some high targets to hit.

Spanish property market

The Spanish housing market is finally getting back on its feet after a very difficult decade in light of the 2007/8 worldwide economic downturn. Madrid is proving to be particularly popular with investors and during the first three months of 2017 rental values increased by 13%. This is the highest figure recorded since 2011 and while such a jump may be difficult to achieve in the second three months of 2017, we are unlikely to see any short to medium term fallback. It is also worth noting that Spanish house prices are set to increase by 2.5% during 2017 with growing interest in land assets.

While Spanish banks and other financial institutions are still holding distressed stock acquired during the debilitating worldwide economic downturn, interest is growing. Over the last couple of years we have seen some large bulk distressed asset sales with many investors waiting for the balance to pass through the market. However, it is worth noting that the Spanish economy is growing, unemployment is coming down and with house prices more buoyant and companies such as Santander able to mop-up troubled operations, there is no doubt that things are looking up.

Conclusion

The one euro acquisition of Popular by Santander was effectively a deal brokered by the European regulators amid concerns of contagion spreading through the financial markets. It will be interesting to see who finally partners with Santander and how successful the long-term strategy of asset disposals and reduced loan exposure will be.

On a positive note, going forward there is growing evidence to suggest that house prices are now in an upward trend and a reduction in distressed stock on the books of banks and other financial institutions can only help.